Comparing North and Latin America Economic Performance [Good Life series]

What explains the dramatic differences in economic performance between the two Americas?

Take some World Bank GDP numbers — one measure of economic success. We want people to make an adequate living, especially poor people who are struggling. And if we are ambitious, we want people to live the good life — including expensive things like quality food, education, healthcare, and travel.

The GDP data are striking.

Start with a poor country like Bolivia: per capita GDP is $3,000 (USD). But in Paraguay, people are half again as prosperous at $4,500, and Ecuadorans and Peruvians are twice as rich as Bolivians at over $6,000 per year.

Going up the economic ladder: Colombians, Mexicans, Brazilians and Argentines typically make about $8,000, $10,000, $11,000, and $12,000 per year, respectively. Already the difference between Bolivia and Argentina is four times. That is impressive.

Next, the most successful Latin American nation: Chileans produce over $14,000 per capita. Also impressive.

But now compare that to Canada, where the GDP per year is $50,000. And even higher numbers in the United States — over $54,000 per year.

What this indicates is that if we compare the North American nations with the Latin American nations — even the most successful Latin American nations — on average North Americans are about four times as rich as the wealthiest of the Latin Americans.

Why?

If one is a Latin American politician or intellectual, no question is more important to answer well. Especially if one is genuinely concerned — and not merely professing to be — with the well-being of one’s people.

So let’s try out some hypotheses to explain the striking disparities.

Could it be a difference in natural resources? Both North and South America are enormously well endowed with natural resources.

Is it the history of immigration? Both continents have absorbed large numbers of immigrants — people with diverse talents and the energy and ambition to travel far and build new countries.

Or could it be exploitation by rich nations of poor nations, as commentators on the left like to complain? For that to be that case, we’d have to imagine that Canadians became rich by plundering Bolivians and Paraguayans. If that sounds too absurd, then maybe we should consider the reverse hypothesis, as Professor Garett Jones argues, that rich countries haven’t been exploiting the poor countries enough.

What of the legacy of colonialism? For better or worse — and sometimes for better — Spanish culture and Portuguese culture were the dominant colonizing influences in Latin America. Yet those colonizing cultures were not especially good on governance issues and on wealth-creation issues. And for better or worse — there are many weaknesses in Anglo culture — North America was fortunate enough to have been colonized mostly by the British.

In his now-classic Empires of the Atlantic World: Britain and Spain in America 1492-1830 (Yale University Press, 2006), Professor J. H. Elliott makes the contrast this way: Spain’s empire in America was an “empire of conquest” while Britain’s was an “empire of commerce” (p. xv).

So a follow-up question: What ideas and institutions did the British give to the North Americans that enabled them to build successful economies?

Yet it is not only an issue of colonialism many hundreds of years ago. Only one century ago, to take two prominent examples, Buenos Aires and Chicago were roughly equal in size and prosperity. Both were similarly populated by immigrants from everywhere, and both were major transportation and agricultural hubs. Yet as this National Bureau of Economic Research paper by Filipe Campante and Edward L. Glaeser analyzes, the two cities have gone on radically different trajectories — Chicago to greater and greater prosperity and Buenos Aires into slow decline.

Also, recent data indicate that some nation’s politicians and intellectuals can transcend their cultures’ histories and try a new path. In The Wall Street Journal, David Luhnow argues that taking Latin America as an undifferentiated bloc is now too crude. There are two Latin Americas — one oriented to the Atlantic and big-government-statism and the other oriented to the Pacific and freer markets. Recent growth rates in Brazil, Argentina, Venezuela are sadly half of those in Chile, Mexico, Colombia, and Peru. What has driven those differences?

I am appealing to Latin American intellectuals and politicians with these questions because in my experience many are open-minded and actively exploring the data and the history. But they are a minority — and the majority seem locked into self-defeating ideologies.

And that ideological battle is the most important. Whether one is able to recognize and exploit natural elements as resources — whether one sees emigration and immigration as good or bad — and what governance and economic system one favors — all depend critically upon broad philosophical assumptions.

So another big-picture factor in explaining the economic differences between North and Latin America is that that the intellectual world — particularly the philosophical world — is split. In modern times it is split between Continental philosophy and Anglo philosophy.

The Continental philosophical tradition takes its bearings primarily from the German and the French intellectual traditions. For that tradition, the major intellectuals are Kant, Hegel, Marx, and Nietzsche — and in more recent generations, Heidegger, Foucault, Derrida, and others. That tradition that has a huge impact in Latin American intellectual life but a lesser impact in North American intellectual life.

In North America, a different intellectual tradition is much stronger. That tradition takes its bearings from Francis Bacon, Isaac Newton, John Locke, Adam Smith, David Hume, John Stuart Mill, and others. It is a British intellectual tradition. But in Latin America, the Anglos are much less known.

It’s the difference between philosophies that center on rational individuals who produce and trade with each other to mutual benefit — and those philosophies that appeal to power conflicts between semi-irrational collectives who exploit each other. That clash of philosophical traditions goes far in explaining the dominance of horrific wars in the twentieth century, and it goes far in explaining the differences in economic performance.

So for those intellectuals and politicians, especially in Latin America, whose education has exposed them only to the nineteenth-century Continentals and the twentieth-century postmoderns: Are you equally paying attention to the extremely potent intellectual tradition that has had enormous success in North America? If your ideology teaches you only to see exploiting collectives everywhere, then you will see wealth as a sign of ruthlessness and poverty as a sign of victimhood. You will then decide either to become a ruthless exploiter yourself or to attack the wealthy on behalf of the poor. Neither strategy leads to economic prosperity.

But if we are really concerned with poverty and more broadly — as all decent people are — with everyone’s being able to pursue the good life — then we need to be open-minded to other intellectual traditions that may have better answers than, unfortunately, the ones that are taught predominantly in Latin America.

[This article was originally published in English at EveryJoe.com and in Portuguese at Libertarianismo.org.]

[Related: The full archive of my articles in The Good Life series.]